Joyce Budget likely to keep a tight rein

With the good times back, the job is much harder for Finance Minister

When John Key suddenly resigned as Prime Minister, an imperceptible power shift meant deputy leader Bill English was the only serious contender to replace him. That wasn’t always the case. Steven Joyce was considered an obvious heir, if Key had fallen under a bus ( along with Simon Power who retired early from politics). English was not in the picture.

But something changed over National’s first and second terms and Joyce was slowly overtaken by English in a power shift that became obvious only when the crunch came.

By that time, it would have been a shock had Key implored the caucus to select Joyce as his replacement instead of English last December.

Joyce has to be satisfied with being Finance Minister, and this week he delivers his first and possibly only Budget if National cannot form the next government.

Satisfied is an important word because he is. There has never been any sense of rivalry with English or sense that Joyce felt hard done by or deprived a chance at the top job.

He certainly has never cultivated the backbench as many of those with leadership aspirations do.

But his various jobs as the Government’s key political strategist, National’s election campaign chairman for five consecutive elections, as well as Finance Minister, clearly make him the second most powerful man in the country.

Thursday’s Budget won’t be the one that defines Joyce or even shows what sort of minister he would be if he is back in the job next term.

There just hasn’t been time to stamp his mark on the portfolio yet. And they are still English’s surpluses to spend.

A logical demarcation has already occurred with English and his protege, Amy Adams, continuing the work on social spending, while Joyce and his protege, Simon Bridges, are continuing the work on roads, trains, bridges, business, and reducing taxation.

That evolution was evident in the respective pre- Budget speeches by English on social investment and Joyce on infrastructure.

Other differences in style may emerge behind the scenes. Joyce is a details person and may likely be more demanding on Treasury to improve its forecasting and policy analysis than English.

English saw Treasury expand its thinking beyond balance sheets into improving people’s lives and engaging with a greater range of stakeholders.

Led by Gabriel Makhlouf, Treasury is not likely to drop that new dimension — and nor would Joyce expect it to. But it may not remain as important now that English is no longer Minister of Finance.

The reason Joyce was overtaken by English over two terms was not so much that Joyce’s stocks fell, although they did a little ( Sky City, MBIE excesses, Northland byelection, Eminem); it was because English’s stocks rose through his performance as Finance Minister.

The bad times served English well. Good times are harder for finance ministers.

In an era in which expectations of success were low, he asserted himself as steward of the public service and produced a plan and results that stood out.

The language of Budget changed: cuts became savings and spending became investments. His catch cry was “Restraint is permanent”.

Now the good times are back, the job is much harder for Joyce. He has more choices than English had.

But things have not returned to normal. The year National took office in the midst of the global financial crisis was the year politics- as- usual stopped. Politicians stopped making big promises.

The electorate was looking for restraint and that expectation has not disappeared.

Joyce’s challenge will be to produce an election- year Budget without it looking too much like an election- year Budget.

It is important to remember that this is the first financial year since 2008 that started with a known surplus.

The 2015- 16 year eventually posted a $ 414 million surplus, but at the start of that year it was forecast to be a deficit of $ 684m.

It is easy for Opposition parties to adjust to a surplus mentality with an abundance of ideas of how to spend it but surpluses do not yet feel normal.

Some of the restraint is being labelled a “cut” by the Opposition, such as growth in health spending being $ 1.7 billion less than Labour would have.

But with inequality and poverty still registering high in voters’ issues of importance, the focus of the announced spending in the Budget so far has been on redistributive and social measures.

The first payments in the $ 2.048b pay equity settlement will be in this Budget, as will some of the $ 2.23b Crown Building Project and $ 321m new funding for social investment programmes.

Joyce has firmly signalled a families and tax package, as did English long before him.

In fact, it was in December 2014’ s Budget priorities for the following year, that the 2017 move for tax relief was foreshadowed with the following priority: “Beginning to reduce income taxes from 2017 with a focus on low and middle- income earners.”

Reversing some of the 2011 changes to Working for Families is a clear option.

Designed and implemented in phases to minimise outright cuts in nominal sums, lowering the threshold at which abatement kicks in and raising the abatement rate was designed to save $ 448m over four years.

Perhaps the best measure of what sort of Finance Minister Joyce will be, if National survives in Government and he gets to keep finance in a coalition deal, is the new debt target he set in his pre- Budget speech last month.

The headlines focused on the huge infrastructure spend but he set a new debt- reduction target — between 10 and 15 per cent of GDP by 2025, to replace 20 per cent by 2020.

Net debt is currently $ 64b compared with about $ 10b just as the GFC started ( 24.3 per cent of GDP compared with 5.4 per cent).

That suggests someone who is happy to limit future spending, someone who is happy for restraint to be permanent.